MaxedOutMama

Friday, October 30, 2009

House Medical Plan

I had a bunch of stuff to post on, but I am not feeling well at all, probably due to taking off the flat, putting on doughnut, getting tire fixed, and putting on tire in the cold wet. Most of the time I do pretty well, but either the flu blew something loose internally or this is my old trouble back again, because this morning my muscles had stiffened so badly that I was nearly immobile.

So I decided that since I was in pain anyway, I'd do some research on that 1,990 page health care bill. I didn't get too far even with the summary before I cracked up laughing and did myself further damage. I think I tore something loose in my rib cartilage. So be warned - you might want to exit to safety before reading on.

Here is the summary and it is only 11 pages. This has many awesome features worthy of Dilbert, but the one that did me an injury is on top of page 2. The bill contains a mandate to provide coverage for businesses, and if they don't, they have to pay 8% of wages to the exchange. For a lot companies currently, that would be a good deal, so I have always seen this as a severe problem that will shift coverage to the subsidized exchanges.. But this - this takes it a step further:

Small business protections. Small businesses with annual payrolls below $500,000 are exempt from requirements to offer or contribute to coverage, including the 8 percent payroll contribution for failure to provide health benefits to their workers. As a result of this exemption,86 percent of America’s businesses are exempt from any requirement to provide coverage to their employees. The 8 percent requirement is phased in for small businesses with an annual payroll between $500,000 and $750,000.

Well, there are many ways to structure businesses and employment, and I suspect that within three or four years after passage, it will be more than 86 percent. For example, there is employee leasing - the legal structure of which is that your employees work for another business. It would not be difficult for some large employee leasing firm to set up a franchise system in which most employees worked for small units that basically were shell firms below the 500K which would then contract employees to much larger firms for a percentage cut of payroll - say 2%. How much do these DC bozos think the average employee earns? Since one person can own any number of these luscious little profit centers, I think I'll plan to own about 20. It takes paratisization to a new level, but hey, in the land of the crooked only the honest are slaves.

Needless to say, this is going to be like a dagger to the heart of large businesses in the US, because smaller low wage competitors just got handed an 8% of payroll price advantage. The natural result would be to force all businesses to the lowest level of wages, shift employment structures massively, and throw most employees on the exchange.

The implications for my business is staggering. I have already mentioned in the previous post that it imposes an 8% tax on wages on my business — a business where 50% of revenues go to wages and margins are in the 6-7% range. You do the math.

Worse for us is that nearly all our competitors are ma and pa companies with less than $500,000 in wages a year, meaning that our competitors will be exempt from these taxes, giving them an automatic 4% cost advantage over our company. Great.

Twelve seconds after this thing passes, I will be on my phone to my attorney to figure out if it is possible to break my company into multiple corporations that all fall under the 500,000 wage limit. The paperwork and administration for this would be a huge hassle, but it can’t be as high as 4% of sales.

Well, the other option is employee leasing, Coyote. I may have just found my next million-dollar idea. Because damn straight, it's going to be easier and cheaper for you to lease them from multiple businesses that provide a unified type of service than split up your whole company. Call me. We'll go into business together. We'll make millions the first year. That is, we will if I can keep my rib cartilage whole.

It just goes on and on like this; the incentives in this bill are for all large companies to fire most of their employees and shfit their workforce to part-timers and leased employees. Thus, and I was already in pain from convulsive laughing when I reached the top of page three where what to my wondering eyes appeared but:

Government responsibility. It is the responsibility of the federal government to ensure that essential health coverage is affordable and available to all Americans by establishing consumer protections and insurance reforms, affordability credits and overseeing a fair marketplace for people to choose among options.

Which immediately translated in my mind to:

Government responsibility: It is the responsibility of the federal government to ensure that essential health coverage is affordable and available only to all Americans as wards of the federal government by ensuring that their employment is part-time or temporary, and low-paid, and by destroying all unions. Say goodbye to your way of life! Get used to kissing the ass of your Congress Critter!

I think anyone who knows anything about business will find these 11 pages to be a true eye-opener. Small businesses will be eligible to buy coverage through the exchange after 2013, so that's when you can look to get hired again. You ain't gonna be making much, though, because there is a huge incentive for corporations to lower their costs by ensuring that the government pays a good portion of your benefits:

Affordability credits. Provides financial assistance for premiums and cost sharing for individuals and families with incomes up to 400 percent of the federal poverty level (FPL). Affordability credits are offered on a sliding scale such that premiums range from 1.5 percent of income at the lowest tier to 12 percent at 400 percent FPL. Provides additional assistance for households with incomes up to 400 percent FPL by limiting cost-sharing to 3 percent of plan costs at the lowest tier rising to 30 percent of plan costs at 350-400 percent of FPL. Specific out-of-pocket maximums are added to protect individuals at each income tier.

You can access the FPLs for 2009 here; they are adjusted each year and published in the Federal Register. It is a beautiful thing.

Remember that exercise a few posts ago in which we determined that the US median household income for 2008 was $50,303? Take a married couple with one child earning $50,303. That's three persons. The FPL in the 48 states is $18,310, so their income is 2.74 of the FPL. The federal government is going to be subsidizing these folks. Their premium cap is going to be around 5K, and their out of pocket is going to be about 7-8K. If the family had high costs, it would pay them to get less salary; no doubt their employers would be happy to comply. Because if they get their wages down to 250% of FPL - 45,775, their out of pocket cap drops by 4K, which after taxes is going to be net gain in income for them, especially considering their premiums are going to drop more than $1,000 and their copay is going to drop 7%. Since only families and individuals with high medical costs are going to be buying insurance (see the end of this post), that's a massive incentive to fix it up with your employer.

Needless to say, you can count on federal wage tax receipts dropping as this thing goes into effect, which is why CBOs scoring is ludicrous.

Revenue. The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million (married filing a joint return) and $500,000 (single) at a rate of 5.4 percent. The bill also: delays implementation of worldwide interest allocation until 2020; limits eligibility for reduced treaty withholding rates; codifies economic substance doctrine; information reporting for payments made to corporations; eliminates nontaxable reimbursements of over the counter medications from HSAs, HRAs, and health FSAs; limits contributions to health FSAs to $2,500; increases the penalty for non-health related distributions from HSAs (from 10 percent to 20 percent); eliminates the tax deduction for employers who receive a government subsidy for providing retiree prescription drug coverage; impose an excise tax of 2.5 percent on medical devices used in the United States; and ensures tax parity for employer-provided coverage for domestic partners and other non-dependents. The bill also clarifies that an employee’s share of premiums for employer-provided coverage offered through the Exchange may be paid on a pre-tax basis through a cafeteria plan, but Exchange coverage that is not employer-offered is not eligible to be offered through a cafeteria plan.

Of course stuff like taxing retiree prescription plan benefits pretty much ensures that employers will cut them, and since many people in their 50s and early 60s rely on this coverage, that's going to be a real privation for them. The HSA and FSA cuts eliminate one way of providing highly economically efficient insurance; I guess Congress doesn't like economic efficiency. Taxing medical devices will directly raise costs paid by insurers and thus insurance, but heck, most people will be receiving their coverage through the government exchange anyway with 8 years. No corporation can survive when it raises its costs above those of its competitors.

It also appears to take an axe to Medicare reimbursements through a bunch of nice-sounding garbage that really gives a bunch of excuses to cut payments and increase harassment of doctors and institutional providers.

You might wonder why, since this thing is supposed to be so wonderful, we would need an extensive program of grants for school-based clinics. I wonder why too, but I assume this is supposed to cover reproductive services.

If this were not in fact serious, it would be wonderfully funny parody. As it is, it qualifies as a Greek-style tragedy.

The taxes suggested are not going to be nearly enough to pay for this. There just aren't that many tax returns at that level; even if this tax were applied to all AGI for tax returns over $250,000 it wouldn't come near to paying for it.

Because premiums are going to go through the roof! The penalty for not buying coverage is 2.5% (That's $250 per $10,000 of AGI) of AGI above the filing threshold. The filing threshold for singles is above 9K for 2009. Nobody can be denied coverage for pre-existing conditions, so many moderate-income individuals will pay the penalty and just buy coverage through the exchange when they really need it.

Suppose you are a young person making $30,000. Your fee for not buying coverage is going to be under $550 annually - thousands less than buying coverage. If you are in good health, you'd be a fool to buy the coverage; it will be there when you need it and you are only disadvantaging yourself.

Altogether the most idiotic piece of legislation in a long time. It will add trillions to the deficit in short order and jack health insurance rates sky-high within a few years of going into full operation. Needless to say it is not sustainable - it is, in fact, designed not to be sustainable for the reason of not offending anyone by forcing them to pay for it, so of course it will be repealed later in sections. At that point it will actually be cheaper for many high-income persons to accept a 17-20% wage tax for universal health. So that's how we'll get there; employers will be forced to drop coverage and exchange premiums for those not subsidized on the exchange will be so massve (20-30K annually?) that the Ann Althouses of the world will sign on to universal as a way of keeping more of their money.

I have never laughed so hard over a piece of legislation, but in the end it will be an expensive bit of comedy. The Medicare provisions are lethal to health care for the elderly, I think.

Economically speaking, it would appear that the individuals who drafted this bill have not a clue about business in America. This does not surprise me, but is forcing destructuring on American business truly a good idea at an economic time of such diifficulty? One would suspect not.

But then, those who have brought us fake jobs for $160,000 a job probably think this is cost-effective. I don't know. Businesses have to be alert to this type of thing; I don't think the feedback will be good, and one wonders what type of cynical promises have been made in back rooms.

If you are interested in simulating what this will cost over time, most of the data you need can be found on page 7, Table 1 of the 2007 IRS tax return summary and in the ensuing pages. You won't get much more than 80 billion from the surcharge, if that.

Thursday, October 29, 2009

GDP, Titanic, Desk Chairs

See, nothing changed on the carrying wave. Nothing. See this prior post, and look at the updated graph for Q3. Just click on it, and meet your doom.

Gross private domestic investment is still sitting at 11% of GDP. The import/export contribution worsened a bit.

The combination of declining real disposable incomes, declining tax receipts, and trying to squeeze growth out of government spending and personal spending is an exercise in futility. It can only work short term, and the more the government borrows the more you are stealing from future growth. We will borrow that money now cheaply and be paying ever-escalating interest on it.

Figures here. GPDI at 11% of GDP. Government spending at 20.7%. Both of these did not change from Q2. PCE rose from 70.7% to 71.0%. Net exports worsened a bit, moving from -2.4% to -2.7%, equivalent to Q1.

That's a whole fat lot of nothing. This is what Who Struck John meant when he was talking about sideways until next year, then down again. This is the sideways.

It would be time to rationally panic and start consider doing something, or learning Japanese so we can find out how they do it. We are already being carry-traded; the next step is for world growth to resume and for all our industries to start exporting investment. If we want to stop that, we need to cut corporate tax rates!!!

Everything's Dandy, Sugar and Candy, Lala LA

I wasn't thinking that this GDP release would be all that joyous, and it is great to see some positive numbers.

But the underlying details aren't very encouraging. It looks like we have about four more months left on the inventory adjustments before those fade out.

Because of the overhanging debt problem, this is one of the few times in my life I've paid more attention to current-dollar measures than real measures. And that's what just kicked me in the face about this GDP release.

Table 1 gives you the change from prior periods in "real" terms. That plus 3.5 looks awfully nice, and I weakly wanted to stop there. Sadly moving down the table, we see that personal consumption expenditures (PCE) increased 3.4%, whereas disposable personal income dropped 3.4%. This might puzzle a person until one realizes that this far into a down period, people really, really start needing things. Everything from cars to lamps to clothing. So they are not as conservative as they would like to be. However one cannot assume that falling disposable personal income will correlate indefinitely to rising PCE; this is not how the world works in real terms.

I was steeled to the falling incomes bit, so I proceeded bravely onward to Table 2, which gives us the percentage contribution to the change from prior period. PCE accounted for +2.38%. Gross private domestic investment accounted for +1.22, but the vast bulk of that was inventory adjustment at +0.94%. The rest is basically gubmint spending at +0.48%, but state and local is declining, so the federal gubmint had to increase spending by 0.62% to create that positive.

So at this point we heave a sigh and acknowledge quietly to ourselves that people are spending money from savings (some of which is coming from written-off debt!) and government is spending mythical tax dollars (borrowing) in order to push this through. It is the personal spending which concerns us really. Disposable personal income is defined as personal income less taxes. This is why increasing taxes to spend more government money does not get you out of a recession but gets you further in. You can only increase taxes on the population in small wedge segments, or disposable personal income falls more than GDP increases from the government spending. Of course, one of our current problems is that state and local taxes are going up and have gone up for years disproportionately to personal incomes of many people living on stable incomes, which is tending to erode their spending power.

Brooding about PCE and declining disposable personal incomes I proceeded onward to Table 3, which gives us GDP level and change from preceding period in current and real dollars. Here is where one wants to stop and sing the Marine Hymn before proceeding; one suspects that this could be painful. The reason we are so interested in current dollar measures is that debt is paid out of current dollars.

So, metaphorically guarded by Marines, this one proceeded to look at current dollar measures in Table 3. Noting that GDP increased by about 150 billion, and noting that PCE increased by about 150 billion, the Marines and I scrutinized PCE with some care. Spending on motor vehicles and parts increased by about 39 billion. In the work-up for this release, I had figured that 5-7 billion was the real increase ex-stimulus, so we are going to subtract 32 billion as being evanescent and not a carrying force.

Gasoline costs were a concern. Gas prices increased, but real consumption only increased a couple of percentage points. Current dollar gasoline spending increased 48 billion, of which about 46 billion is definitely due to price changes. This goes into the category of "forced", which is really net retraction from other spending capacity; forced spending for consumers tends to shift their discretionary spending patterns down by more than the forced spending increase until the pattern stops changing. In other words, most consumers are likely to be extremely cautious about overall spending for some time to come.

In the services forced categories, health increased by about 19 billion; financial services and insurance increased by about 11.5. That takes us to 30 billion. So now we have PCE of 150 billion going to 128 billion without CARS. 128 billion - 46 billion - 30 billion = 52 billion. That's a kick in the teeth, that is. We did not emerge from Q3 with much of a carrying force at all.

If you think this is an irrelevant exercise, think again. Private inventories are still falling; the net contribution to gross private domestic investment in Q3 derived mostly from the fact that non-farm private inventories fell only about 147 billion in Q3 vs Q2's 177 billion drop. Non-forced spending has a lot to do with both jobs and moving goods out of inventory.

Even the Marines cannot save us from the sad reflection that PCE is going to be curbed later in this cycle by the fact that several millions of households are now living effectively rent-free through the simple recourse of not paying their mortgages. Eventually, this economic stimulus is doomed to end and it is hefty. Figuring that the average household manages to clear an extra 7K after compensating for moving expense, higher credit, etc, and figuring 2 million households a year, that gives us 2,000,000 * 7,000 = 14,000,000,000 or a 14 billion dollar stimulus, no small factor when you consider that that is 9.3% of the annualized increase in PCE seen in this GDP release. With initial claims hanging in there above the 500,000 weekly level, the picture is a bit intimidating.

There has also been a substantial net boost to spendable incomes and thus PCE from the lower mortgage rates. Those rates will hang in there in the future (who the heck is going to refi a 4.9% mortgage?) but the additive effect is about gone and it is real stimulus to the consumption side of the economy. Seven million housholds paying $2,400 less a year on their mortgage than otherwise is a net 7,000,000 * $2,400 = $16,800,000,000 (16.8 billion) added to spendable income. And we've hit the trough on mortgage rates.

So we are locked into increasing government stimulus to try to compensate for the net drags we believe to be coming in the first half of 2010. Oooh, that smarts. Boy, does that smart.

The combination of forced PCE increases with decliniing real disposable income suggests that the only real cure for this economy is consumer debt write-offs, which makes the wacky idea of giving households with 225K annual incomes 8K to buy a house look even stupider, doesn't it? It's kind of as if a person with declining income were running up debt on his credit card to buy gold toilet fixtures on his house just because he has a six-month very low APR on his credit card.

Update: No, it's not me with a bad case of the blues. I have a flat tire, but not the blues. Forbes article:

Tuesday, October 27, 2009

You Know, I Believe I'm Beginning To Get Riled

Update: Calculated Risk is following this, the latest word is that perhaps Reid's attempt to attach it to the unemployment extension bill is causing upset. That's very good. This is one worth contacting Congress over. It might also be worth contacting the media; their amazingly uncritical reporting of this might change if they are embarrassed into a little research.

Also, Tim from HSH asked what the cost of the credit would be. There are several tiers of cost. The first is the direct funds expended, and that will be in the tens of billions of dollars. The second is involved in the fact that the purchase credit is inducing some people to buy homes when they shouldn't, which factor is aggravated by FHA accepting the credit as a downpayment. As soon as the credit ends and Fed MBS purchases stop, mortgage rates will rise. Then we'll have the following situation: We'll have brought forward poor quality demand. Those buyers who were marginally qualified and needed the tax credit to purchase will have bought houses on which they will be underwater. Needless to say, that will cause further defaults and sales at further losses. Almost all of those sales will be handled by the GSEs, which means that the taxpayers will end up with the losses. And that's where most the costs lie. I will post with more detail on the credit card issues and the expected real cost of the home purchase tax credit. End update.

I've been watching this video over and over again this evening. It is about the only thing that accurately conveys my feelings:

So they want to extend the housing credit, do they? And create a new bracket which will give money to people who are "move up" buyers earning up to $250,000 annually? Because, hell, everyone knows that Granny must go, but buying houses for people with incomes solidly in the top five percent of all US households is a crucial and progressive element of the US economy. I mean, hells bells, there's nothing so American as giving money to the top five percent to buy property from the top one percent.

This is the stuff of which revolutions are made. I cannot hope to find the words to accurately describe this insanity (Bloomberg article):

The deal would reduce the size of the tax credit to 10 percent of the sale’s price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. ...The demand for new homes and condominiums may increase by “more than two times because you’re allowing step-up buyers into the equation,” said Andrew Parmentier, a managing partner at Height Analytics, a research firm in Washington. “ You just opened up a whole new pool of people who can buy into those empty homes and empty condos that were built out.”

The income eligibility for first-time homebuyers would remain the same at $75,000 for individuals and $150,000 for couples. The income criteria for step-up buyers would be $125,000 for individuals and $250,000 for couples.

Listen, if we have to pay people 1% of the purchase price to buy an $800,000 home when they've got say, a $200,000 household income, we have a serious problem with insane high earners. If anyone thinks this is really going to make a difference to most people who want to "step-up", that person has rocks in his or her head.

I would like to daintily point out certain facts itemized (in a very ladylike fashion) in my last post. In 2008 the lower limit for the top 5% of households was $180,000. It is nice to see our Congress Weasels trying to take care of the welfare of the top 5% of households by income, with money we don't have. It is even nicer to contemplate what this "step-up" credit will really be used for - buying a new, cheaper home and walking away from the old one. This is the "pay them to default" tax credit. I also find it wonderful to contemplate that Congress is just so darned set and determined to balance the budget that they are proposing to raise taxes on health insurance next year. But knowing that the union guy earning 40K is tossing some revenue in the bucket so the 200K guy can buy his seventh house is gonna make that feel little ouchie feel sooooo much better.

All of this money is just being thrown away. Note that this is of course a bipartisan deal, shepherded carefully along by prominent Congress Weasels Dodd and Isakson. It is even nicer to understand that this is supposedly being tacked on to the unemployment extension, so that the other Congress Critters can be induced to vote for it, in case their Critter consciences raise difficulties. They are not all weasels, you know.

I can only imagine the scene on the floor when this bipartisan move toward a brighter tomorrow is coming up for a vote. Why, they'll have to detach the Weasels from the pages (creating a giant sucking sound that will reverberate through our nation's capital ), drag Craig out from the men's cloakroom (he spends a lot of time in there practicing his tap-dancing), remove the banker lobbyists from their posteriors (please, please, remember those breath-mints!), rip Barney Frank away from his latest consultation on foreclosure avoidance with the the GSEs, get Rangel to hold those mortgage apps for low-cost refis on his numerous primary residences (he's done very well with those so far), extract Dodd and Conrad from their meeting with the FBI regarding VIP loans, and interrupt Reid's very, very important calls on some very, very important business. But we can all feel great about the fact that Isakson has nothing whatsoever to do with Georgia real estate, and will absolutely, positively not gain anything personally from this sort of thing. It's not like his business is, you know, real estate, or as if he ever had anything personally to do with the sea of defaults around the Atlanta area. As he assures us in his own words, he is a completely disinterested expert:

Isakson has pushed hard for a tax credit for homebuyers since January 2008 because he knows that it will work. In the mid-1970s, America faced a similar housing crisis when a period of easy credit and loose underwriting flooded the market with new construction. Interest rates rose, the economy slowed and America was left with a three-year supply of vacant homes. Congress responded by passing a $2,000 tax credit for anyone purchasing a new home for their principal residence. Isakson, who was in the real estate industry in Atlanta at the time, says the results were clear and swift as home values stabilized, housing inventory dropped and the market recovered.

Isakson spent more than three decades in the real estate business, beginning his business career in 1967 when he opened the first Cobb County, Ga., office of a small, family-owned real estate business, Northside Realty. Isakson later served as president of Northside for 20 years, presiding over the company’s growth into the largest independent residential real estate brokerage company in the Southeast and one of the largest in America.

Anyway, if you were perchance wondering why economists not paid by NAR pretty much uniformly agree that the housing tax credits are a totally useless economic stimulus on a par with trying to wake up in the mornings by lacing your coffee with Valium, but yet somehow this message never penetrates through to the weasel warrens of Congressional power, you might want to read about one of the very earliest US cases that went to the Supreme Court, Fletcher v. Peck. Dear readers, this is as Georgian as peanuts. Remember when those started showing up in everything? When will you learn?

Night of the Living Undead Realtors and Property Developers is a pretty scary film, now playing in a Congress near you! A free people can not long tolerate such insults, so think it over and call your Congress Weasel. I'm sending mine a link to this video along with a gentle suggestion that I suspect that this legislation is injurious to the public interest, a hint that perhaps a bit more attention to the fate of common folk might be warranted, a respectful reference to the fate of the Fletcher v. Peck legislature, and a Patton quote:

Next Installment Of The Hopium Blues

It's all about incomes, really. And the implication of declining incomes for tax receipts, entitlement programs, the needs of the population, etc. Without starting from the fundamentals, it is hard to design workable social or economic stimulus programs.

First, we need some perspective. See Census data here and here for the following.Click on this for a larger image. What you see here is total housing units from 2000 on, from Census. These are estimates, but pretty good, and no matter how much one discounts these estimates, the fact is that total housing units rose by over 12.5 million from 2000 to 2008.

And what did incomes do? Yes, we have another clickable table, also from Census:This table gives you ten years of income history by household income quintile in 2008 dollars. That's 1998-2008. The first column is total households. The next four are upper limits by 5th, and the last is the lower limit of the top 5%. US incomes are much flatter than most people want to believe, which is why cutting taxes on everyone but the top 5% is such a futile proposition.

Note the following over this decade:

The lowest fifth saw household income drop from $21,259 to $20,712.

The next fifth saw household income drop from $40,113 to $39,000.

Note that the median occurs in between these two brackets

The following fifth saw household income fall from $63,764 to $62,725.

The next quintile saw household income rise from $98,936 to $100,240.

The 5% bracket saw household income rise from $174,390 to $180,000.

Note that all income brackets are off their ten year high.

The bottom quintile saw income peaks in 2000, at $22,405.

The second quintile saw income peaks in 2000, at $41,260.

The third quintile saw income peaks in 2000, at $65,233.

The fourth quintile saw income peaks in 1999, at $102,383, then fell through 2004, and reached a second peak in 2007 at $103,842.

The top five percent peaked in 1999 at $183,493, then fell into the mid 2000s, and reached a second peak in 2006 at $185,824.

I have discussed tax receipts in 2009 with some thoroughness, and if you have read those posts I think you'll agree that all of these brackets are still falling.

To some extent we are seeing demographics here. As people enter their later 50s, the incomes of those in private industry tend to level off and then start declining. Only government workers maintain their jobs and their income levels.

Another factor is that the incomes of the top brackets were heavily intertwined with the asset bubble. and the grossly disproportionate government/private compensation premiums. See 2006 summary of federal ratios. Over this decade, wages and benefits paid to government workers grew whereas private incomes fell. This last, is, btw, the reason why the WIET declines are so tightly linked to the government wage and salary job losses. Government job losses over the course of this recession have been hugely concentrated toward recent months.

But government jobs are going to continue to decline. This has major implications for financial assets, because as these jobs decline, retirement benefits are going to grow hugely, but the ability to shift money into the retirement funds is declining. So 401k and pension plan benefit stimulus for stocks and bonds is going to erode.

Somewhat obviously, housing values are going to continue to decline for a few years. All the money dumped into housing credits is basically being wasted. As incomes fall and mortgages shift toward actual repayment plans instead of eternal borrowing plans, housing values must fall to compensate. One can shift the adjustment timing a bit by spending all this money, but the end point will be tied not to interest rates, but to incomes.

So the best real stimulus for housing is to concentrate on generating private sector jobs.

If you will look at the second table again, you'll see that incomes for all these brackets declined following the 2001 recession, which really extended into 2003. The income bottoms are centered on 2004, with only the lowest quintile troughing in 2003. You will see a similar pattern on this recession, even if we do not tip into a second cycle of contraction; incomes are going to bottom several years after NBER's official recession end date.

Somewhat obviously, household formation is constrained by lack of income. With the great increase in housing units since 2000, rents will fall until we reach an equilibrium between incomes and rents that allows new household formation. Housing values are highly related to rent, and thus to household incomes.

There are less obvious implications which have strong economic implications. The distortion between government/private incomes is not tolerable. Here we will go back to Table A-5 from the last employment release. As is normal in recessions, the ratio of public/private employment rose from 18.85% in Sept 08 to 19.6% in Sept 09. However private incomes are falling too far and too fast to support taxation levels that can support our government employment. This will either be corrected by public policy or by a hard turn to the right, which is why conservative Ds and conservative Rs are abruptly beginning to sound so much alike. Recovery largely depends on some highly boring and not very marketable adjustments, plus a hefty dose of realism. The Rs have to drop the tax-cutting mantra, and the Dems have to drop the spending mantra. We are living in an era of sharp constraints.

The other obvious implication is that we simply cannot continue to shift costs from government-paid insurance onto those on private insurance. That is why the protests against the current health care "reform" bills have legs and persistence and are coming from both the right and the left. Whether you are a progressive or a hidebound conservative, reforms which promise government subsidies but do not attack the genesis of the problem are not reforms, but cosmetics that will induce sharper future cuts. Since everyone wants to be able to access medical care, this is a rising concern. Since medical costs in the private sector are rising while incomes are falling, it is an acute concern.

Because we are essentially faced with problems of social "fairness", the electoral map is biased toward Democrats. But if the solutions chosen continue to suppress growth, the electoral map will abruptly shift towards Republicans. It is no accident that taxation and employment policies which grossly favor government workers over private workers were those that formed the basis of last year's national elections, and it is no accident that large industries with heavy government lobbying power are managing to get the government to give them hundreds of billions of dollars. The big companies - insurance companies, auto companies, energy companies, financial companies - have all been very successful at getting federal handouts since the Clinton era, and current proposals amount to a huge shift toward handing out more money to relatively prosperous segments. This cannot continue - it will not continue, because the price of its continuance is dollar deflation and a vastly lower standard of living for most Americans.

We'll find a new balance somewhere. None of this is impossible, but the transition to a economy that is capable of growth is going to require a new kind of electoral calculus. Just as CA has been forced to start cutting benefit programs and government spending, the federal government is now faced with the same choice. Every time we pay T. Boone Pickens to build another windmill, we are in effect handing a good portion of that bill to Americans with very moderate incomes, who are already overburdened by their own debts.

Median household income in 2008 (see 2008 Census release) was $50,303. Mean (average) household income was $68,424. Median income for owner-occupation households was $62,082.

While household incomes did not increase for a decade for most households, here is what happened to household debts:Obviously that correction is not over either. A lot of that is mortgage debt. Let's look at consumer credit outstanding, which is composed largely of CC debt and things like auto loans, student loans, etc. The historical tables for SA consumer debt are here:

In 1998, outstanding consumer credit SA ended at 1.42 trillion. In 2008 consumers ended the year with 2.56 trillion, which we have since paid down to 2.46 trillion. Stated in current dollars, in 1998 the upper income limits for the middle fifths (2/5ths and 3/5ths) of households by income were 30,408 and 48,337. Which makes things look better, but the truth is that consumer debt is paid always in constant dollars from disposable income, which has only declined over that period. It's pretty clear that US consumers compensated for lower incomes with more debt - for a while, until marginal debt repayments increased more than marginal increases in incomes, which then pushed us over into contraction.

This is the signal I picked up in stores this spring, which is only increasing in strength. Inflation cannot rescue us from our debt crisis, because inflation is dependent on rising incomes. Nor can lending more rescue us; this thing toppled on bad lending when people increasingly became unable to repay their loans.

This post is now way too long. I was going to go on to discuss credit cards and the current rumors, but that will have to come later.

Monday, October 26, 2009

Well, You Live And Learn

I'm deep in tables, finances and NIPA tables. We get the first GDP estimate for Q3 this week, and I've been running through my stuff so I can plug it in quickly. I probably won't believe it though.

NIPA Tables (find 'em here!) Through Q2:Click on this to get a larger image that's actually worth something.

This is from NIPA Table 1.1.6 showing GDP and several components in chained dollars. The top line is GDP. The line under it is PCE. GDP had rolled back to early 2006; PCE has only rolled back to late 2006.

The last three lines are government, Gross Private Domestic Investment and Exports.

Now click on this one and open it in another tab.Same data, really, but this shows the components by share of GDP since 1970.

Here you can see the nasty fall in GPDI and exports in this recession. But what is of particular interest is that PCE (Personal Consumption Expenditures) has grown rather than dropped as a share of total GDP over the course of this recession.

Needless to say this has some rough public policy implications; raise taxes and you pull GDP down unless you are heavily stimulating GPDI in such a matter as to raise incomes and expenditures enough to compensate.

The only way to really pull off that hat trick quickly is to shove the money in infrastructure, and believe me, I do not mean light rail. If we were to cancel the more wacky portions of the stimulus we could throw another 100 billion or so into infrastructure. The timing is wrong, and it needs to get out there quickly, so you'd have to do something else to hit the northern half of the country. But that is just the short term - we need something in place by the end of the year, within three months at the latest.

Gross private domestic investment is at a series low at 11% of total GDP. It will pop up a little (or should) due to inventory clearing this summer, but I am not sure at all that the carrying trend isn't still slowing. Go back and look at the 74-84 sequence. Note that GPDI never dropped nearly this low as a share. It never even got close to 15% of GDP, whereas it is now 11%. That's not viable. You see it took three dips - one associated with the 75 debacle, which was really bad on the industry side. Then it took two associated with the 80-83 woe. You see the early 90s dip. But the low in 75 (only one quarter) was 13.5% of GDP. It was only in the 13s for two quarters, hit the low in Q2 75 and was back in the 16s in Q2 76. The low in the 80s sequence was Q4 82 and Q1 83, and by Q2 83 it was back to 15.6. Q4 83 it was in the 17s again.

There's no comparison to these previous recessions in this one. This one is more than twice as bad in its growth implications. The last three quarters of 2008 GPDI share was in the 14% range. In the first two quarters of 2009 it was 11.9% and 11% of GDP. The components of GPDI are nonresidential structures, residential structures, equipment, software and inventories. Here is a graph of these components in chained dollars so you can get a feel for their absolute levels: (Click on this for a larger version)

We should be through most of the inventory correction and we will get a bit of a boost from that, but it is not going to account for growth for long. Residential investment may or may not have bottomed, but in the near term it is shelfing nicely. Nonresidential (commercial and public) probably will fall through at least next year; commercial is way overbuilt, vacancies for most categories are very high. That leaves equipment and software, and the business readings are such that any growth in that category is probably going to be quite slow. Smaller businesses have not finished their decline yet (nor have many larger businesses), and they account for a big portion of employment, equipment and software. All of this implies that we won't get back over a 14% share for over a year, which is not strong enough to take us back to sustained growth with our debt drag as soon as the inventory correction is through. We might get back to the 12s for a bit, but that isn't going to get us anywhere.

For all intents and purposes, GPDI is the economy. If that doesn't pick up, the economy doesn't pick up. According to these metric, the correction was nowhere near over in June.

PCE and GPDI are linked. If you stimulate PCE, you should indirectly stimulate GPDI. However, we have that nasty little import problem, so of recent years feeding the PCE beast hasn't had as much effect on GPDI.

If you stimulate GPDI, you create jobs and that boosts wages, taxes and PCE quite quickly. GPDI is the major growth driver of the economy.

The other thing I would do is panic in a coldly rational fashion and cut corporate tax rates 5% across the board with the top rate being dropped to 25%. Permanently. Because it is now clear that we cannot afford to maintain PCE without GPDI, and you can only stimulate GPDI so much without raising taxes, which we cannot afford to do on most people, much less on corporations.

A VAT (value added tax) would probably result in a decade-long depression. I think not.

We cannot afford to raise health care taxes in January per the Baucus plan. No way. When the retirement bulge really hits, we will have to raise taxes on the higher earners. But we will only be able to do that once, so it is futile to do it now.

I feel truly sorry for this administration. Like the Bush administration, it finds itself caught in imponderable external inexorables that can only dictate backing away from many of Obama's campaign promises. The good news is that he is still very popular (given this economy, those poll numbers are great!). The bad news is that this administration may not be ready to suck it up and face reality yet.

The truth is that the only way they can get enough growth going to accomplish any of their domestic goals is to pull a Reagan-Palin. Cut corporate taxes sharply, drill, baby, drill (we can't afford green energy that's not cost effective, and only hydropower is en-masse), snuggle and cuddle up to the US Chamber of Commerce, and then proceed to slowly adopt some reform proposals along the lines they want.

But we don't have the room to go to single-payer now. We do have the room to adopt market reforms and raise Medicare reimbursements. We know we have to raise Medicare taxes anyway to about 3.90. Do it now, raise the reimbursements, go HSA for private, and he'll get a lot of support from businesses because health insurance costs will correct.

The Pelosi wing of the Democratic party is zombified by the economy. Obama's going to have to pull the plug on it.

Foul Beasts, Enemies Of The People's Republic, BEWARE

“It’s a mistake,” said Rep. Jason Altmire, a moderate Democrat from western Pennsylvania. “I think it’s beneath the White House to get into a tit for tat with news organizations.”

Altmire was talking about the Obama administration’s efforts to undercut Fox News. But he said his remarks applied just the same to White House efforts to marginalize the U.S. Chamber of Commerce, a powerful business lobby targeted for its opposition to climate change legislation.

Hey, who hired the Episcopalian unification strategist for White House communications? Is anybody really thinking up there? At a time when Americans want jobs, and then some more jobs, and then maybe some better-paid jobs, wouldn't it be wise not to be throwing political garlic at the US Chamber of Commerce?

On the other hand, if their behavior reflects the character of the President and those around him (and the evidence unfortunately points in that direction at the moment) here is considerable cause for worry. In such a case, Obama's poorly contained anger can lead him to make errors of judgement which are consequential. Further, those who cannot tolerate criticism cannot learn from their mistakes. They believe that all criticism is based on a personal repudiation and animus and as a result, never hear the content of the criticism. As a result those who criticize them become enemies who must be crushed in order to remove the stain on their escutcheon.

This is just kid stuff, but it is worrisome. IMO, this is related to the ridiculous claims of racism that were earlier leveled at critics. It's a sign of weakness and childishness, but at least almost all of that was coming from outside the White House.

And to think I worried about Hillary Clinton's Nixonian characteristics. If there are any adults in the White House, they need to throw the Che-T-Shirt crowd out and get some people with maturity in. Quickly.

But maybe this is a case of Obama not wanting to hear the "no" word. I laughed at Paglia for her mental dissonance in condemning the President's advisors while professing unmitigated support of the President, so I don't feel justified in just attributing this nonsense to the advisors. He chose them. He can dismiss them, if he doesn't agree with them. He probably does.

The real problem is that nobody is happy at the prospect of a health reform bill that doesn't really do anything to help for four years but does raise costs, and probably will make things even worse after four years. The more clued-in Dems are very worried about this proposal and about costs involved in cap and trade. For good reason. When push comes to shove, the White House won't be able to declare the Dems Public Enemy Number One, so they need to stop this ASAP and sit down and talk with those with whom they disagree.

Speaking privately at the White House on Monday with a group of mostly liberal columnists and commentators, including Rachel Maddow and Keith Olbermann of MSNBC and Maureen Dowd, Frank Rich and Bob Herbert of The New York Times, Mr. Obama himself gave vent to sentiments about the network, according to people briefed on the conversation.

Then, in an interview with NBC News on Wednesday, the president went public. “What our advisers have simply said is that we are going to take media as it comes,” he said. “And if media is operating, basically, as a talk radio format, then that’s one thing. And if it’s operating as a news outlet, then that’s another.”

Quite naturally, other news organizations are becoming concerned. None of them probably believe they can get through the next three years without publishing something critical of this administration's policies, and no individual reporter wants to have his or her beat threatened for writing what the White House considers unfair criticism.

Thursday, October 22, 2009

If It Were Not For The Honor Of The Thing

Initial claims were revised up for the previous week to 520,000, and rose last week to 531,000. I know that this is a recovery because of the broad-based improvements in shipping, production etc, but this little bug of a recovery doesn't seem to have much carrying power. This is the list of states with increases of over 1,000 in initial claims for the previous week:

State

Change

State Supplied Comment

MI

+1,096

No comment.

SC

+1,247

Layoffs in the manufacturing industry.

OR

+1,253

No comment.

PA

+1,253

Layoffs in the service and transportation equipment industries.

MO

+1,373

Layoffs in the service, transportation, and warehousing industries.

GA

+1,500

Layoffs in the service and manufacturing industries.

TX

+1,631

Layoffs in the transportation, service, and manufacturing industries.

WA

+1,740

Layoffs in the transportation, warehousing, and manufacturing industries.

KY

+1,834

No comment.

IA

+2,181

Layoffs in the manufacturing industry.

KS

+2,544

Layoffs in the manufacturing industry.

MD

+2,783

Layoffs in the trade and service industries.

IL

+3,172

Layoffs in the trade and service industries.

AR

+4,704

Layoffs in the construction industry.

IN

+4,977

Layoffs in the automobile and manufacturing industries.

WI

+4,999

Layoffs in the trade, service, and manufacturing industries.

NY

+5,411

Layoffs in the construction, service, and manufacturing industries.

FL

+9,976

Layoffs in the construction, trade, service, and manufacturing industries, and agriculture.

Lincoln: “I feel like the man who was tarred and feathered and ridden out of town on a rail. To the man who asked him how he liked it, he said: ‘If it wasn’t for the honor of the thing, I’d rather walk.’”

Anyway, I guess my attitude toward this recovery is a cross between Lincoln's view of the presidency and the situation of the Chinese workers who now have a new washing machine gleaming in their house, but no electricity or running water. It's pretty and a trophy of sorts, but what use is it really?

To fully understand my glumness, look at this progression of WIET (Withheld Income and Employment Taxes) from the Treasury Statements:

July 2008/2009: 142,964 / 131,417(-8.1%)

Aug 2008/2009: 136,464 / 126,389(-7.4%)

Sep 2008/2009: 142,759 / 125,216(-12.3%)

Oct (through 20th) 2008/2009: 97,151 / 84,811(-12.7%)

The August comparison was very favorable to 2009, because several more days of revenue were shifted into September. When one accounts for that and the shift in the auto company schedules in July, a very nasty progression develops on the order of -8%, -9%, -11%, -12.5%. Some of it is undoubtedly due to people falling off unemployment due not to jobs but to expiration of benefits. Some of it is probably due to retirements.

Nonetheless, this is not the tonic a person recovering from viral pneumonia needs. When this data is read conjointly with the household survey's report of 1.2 million wage and salary jobs lost from July through September (see Table A-5), the very poor NFIB small business report for September, the previously noted disturbing business expectations from the Chicago PMI report last month, and the continued high initial claims reports, a rather cohesively dark expectation on US incomes and business spending emerges. It's worth noting that according to the household survey, over 350,000 of the wage and salary positions lost were in government.

Then I read the FOMC report and I conclude that those poor dudes and dudettes probably all have the flu, or have OD'd on the Prozac. Whatever drugs they are on, those drugs most certainly have taken the FOMC members to a happy place. Would that the general public could share the same experience. It is true that at the time of the September meeting, some of the later reports were not in, but the chirpy talk about stabilization of business spending, housing values, and a reduction of the economic drag from incomes in 2010 was a little off the wall. It reminded me of the deeply reassuring projections in early 2008 about the expected reduction in economic drag from the bottoming of the residential sector - that on the eve of the worst collapse in the residential sector post WWII.

The reason why weakness in wages, government jobs and small business incomes is so determinative is that these are the stable structural pieces of the economy that generally carry it through recessions. In short, we are now seeing cuts to the bone, and chipping of the bone, and insults to the bone marrow - a structural economic anemia of sorts. The extremely poor tax figures suggest that sales tax receipts will rise briefly and then sag further, implying that the state and local government restructuring has much, much further to go.

Nor can one possibly talk of a stabilization in bank profits or in the housing market with employment figures like these. We need to factor in a wave of new defaults on consumer debt, including mortgages, CC balances, and other consumer loans.

And then one must take seriously energy costs; rises of these magnitudes from earlier in the year would indicate a negative 50 basis points on GDP expectations on energy movements over the summer, which is not something we can afford to swallow right now. There is at least a negative 25 basis points coming in Q1 2010 from the end of some of the stimulus provisions (tax credit, 1st quarter decline in refunds from overcounting of the tax credit, end of COBRA copays?). There is some sort of negative coming from unemployment expirations, but we don't know what that will be. A minimum of a negative 15 to 25 basis points from swine flu. We would expect about 20% of the population to get severe enough cases to impair their work/mobility for a couple of weeks, and that does affect sales. The small business and Chicago PMI look-sees indicate that business spending will continue to decline; that's another negative and not a weak one. Government revenue is going to force government spending on non-social programs and probably social programs to decline. State and local governments are in many cases in death spiral in which declining revenues plus the need to put ever higher contributions in pension and medical retirements funds have created a rapidly shrinking pool of spendable funds. Something's going to break there, but until it does, that is a long term and extremely widespread economic drag which will affect previously somewhat immune economic segments. It's a diffusor of economic stress.

If, which I do not think likely, something similar to the Baucus bill passes additional taxation will exert a perceptible drag on the 2010 economy. Time to go back and look at CERF's last forecast. Look at their US projections. I still come out somewhat more positively, but 2010 isn't looking very green at all.

There are some relative bright spots. Because household formation looks to be suppressed for some considerable time to come - years - one would expect that consumer electronics of the novel/prestige type would have room to penetrate the younger population. When younger people don't form households, they tend to buy visibility goods.

At some point, enough consumer debt will be written off, defaulted and eliminated through bankruptcy to provide an underlying economic floor for recovery.

Over the last few months, it has become clear that business profits are close to stabilizing in the current environment. If we go significantly negative in Q1 2010, that will reverse.

Wednesday, October 21, 2009

Crude At 80

Crude inventories and finished good inventories running very high, YoY YTD imports are down 9.1%, total product supplied is down 4.3% YoY YTD. Crude at $80.

Current gasoline stocks are up 7.5% YoY, crude stocks ex-SPR is up YoY 10%, distillate stocks are up 33% YoY. There's a lot of this stuff around:

At 339.1 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories decreased by 2.3 million barrels last week, and are near the upper limit of the average range. Finished gasoline inventories decreased while blending components increased last week. Distillate fuel inventories decreased by 0.8 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories decreased by 1.4 million barrels last week and are at the upper limit of the average range. Total commercial petroleum inventories decreased by 4.2 million barrels last week, and are above the upper limit of the average range for this time of year.

There's real value and then there's relative value, but we have left either range to go to desperation value (anything but currency).

They Say God Only Gives You What You Can Handle

Yesterday morning early my fever broke. I woke up sweating a bit. Every 3 or 4 hours since I have felt a lot better. By mid-afternoon I was drenched, so I think I have finally broken the back of this virus.

Twelve hours after my fever broke, no water! The pump is seized. I have them here now working to replace it. I really need to wash. I stink. I reek of fever sweat.

It sure would have been awful if this sequence of events had been reversed.

Monday, October 19, 2009

A Decade With Negative Growth

Well, I'm done with my preliminary calculations. I am still running a fever, sometimes quite high, so I won't be posting very much for a while yet.

Not that posting would be very appealing even if I felt better, because everything I've got shows that under current government policies (excluding health care reform and cap and trade), we have created the overwhelming probability of a decade that will show negative GDP growth. I'd call that a depression. Depending on when the Fed changes rates (with the earlier hikes giving the most growth), it's a net over a decade of -2% to -9%. Oh, joy.

Mind you, that won't mean that you don't have some positive periods, but our current policies are building massive risks and government losses which must be funded by the taxpayers, on top of higher structural deficits, which must be funded by the taxpayers, and the inevitable result will be no jobs growth, lower net incomes for most households, and much higher taxation for higher income households. All of that would not prevent growth if it were not that both the Fed and the overall government is now wedded to zombie banks which it cannot allow to fail, and in fact is now following a policy of increasing their hidden losses instead of working them off.

It would appear we are screwed.

What's going to determine the next five years is one simple dynamic; mortgage rates have been pushed so low in a high loss environment that no sane lender would underwrite mortgages at these rates without the ability to lay off risks to the government. Now the GSEs do not underwrite all types of loans, so we have a two-tier rate schedule and an utterly dead private MBS market.

So everything is being sanitized through the government, but that is happening at the cost of very high future losses. Right now money is being slowly but surely siphoned out of the general economy through bank deposit deployment shifting steadily into Treasuries and government-guaranteed low return options, which of course has the effect of creating very low bank interest rates - rates that are below inflation rates, thus a negative real interest rate on money.

The current situation is not disputable. A cursory inspection of H.8 (Assets and Liabilities of US Commercial Banks) shows what is happening. From May to Oct 7th, on a seasonally adjusted basis:

Bank deposits grew approximately 130 billion.

Bank credit dropped about 325 billion.

Bank loans and leases dropped a little under 420 billion.

And bank credit invested in agency MBS and Treasuries grew almost 100 billion.

Borrowings from other banks have dropped more than 400 billion.

Of course the very high bank chargeoffs show where the missing money went - it is simply a loss. A Q2 chargeoff rate of 2.65%? That is about 100 basis points above the previous high, and it is still growing.

The money supply in circulation is being choked off. Naturally this creates an incentive to invest money in anything that would generate a cash return, no matter how small, so we have funded stock and commodity speculation.

Among the commercial analysts, there is a desperate attempt to justify current increases in stock and commodity prices, most of it completely unfounded.

Is the situation in retail improving in a structural manner? No. The wider indices show continued degeneration in pricing power.

Is the dollar declining, and are the costs of imported necessities to the US consumer rising? Yup.

Is the expected real return on sales of most consumer consumption items in the US declining? Yup.

Will that fund business investment and growth? Nope.

The net result is Japan. See Mauldin's last newsletter for a brief summary of what really happened to Japan. For two decades, there was little to no real growth in their domestic economy. Most companies invested externally, which is exactly what is going to happen to the US. This creates a situation in which you have low to no growth in wages and and consumer incomes.

The theory being presented is that external buying from manufacturers benefiting from a cheap dollar will be our way out. There are two problems with this theory. The first is that there are growth problems elsewhere in the world, especially in China. The second is that a cheap US dollar accompanied by high corporate taxation and an expensive operating environment does not create internal corporate investment. It creates external corporate investment. If we wanted to use a cheap dollar to expand the manufacturing share of the US economy, we'd need to cut corporate tax rates to about 25% max (and phase out some of the tax specials), plus assure a steady energy supply.

Ask yourself if you would expand or invest in US plant under the current environment? If you have answered yes, you do not understand business very well. The decision has apparently already been made by US manufacturers NOT to expand internally at this time. We blew through some of our magic ratio levels this summer, and restocking should be well underway (these graphs are from August):A look at H.8 shows that C&I loans at banks have continued to drop, and we are seeing no pop at all in commercial credit for nonfinancials. Flat. "He's dead, Jim!" (to quote the good doctor). There are only the faintest indications in NACM that business credit is expanding, so the net is still down. Mind you, we are not worrying about YoYs, because prices have dropped so much. We are just worrying about the June to current trends, and those are consistently poor to declining. Now you cannot have a business expansion without using money. It does not happen. Saying that it can happen is equivalent to believing that video in Colorado was really of a space alien evincing a fascinated interest in the domestic customs of UFO enthusiasts. Only Wall Street economists are capable of such nonsense when they go In Search Of Optimism. These are the same folks who were highly reassuring about financial risks in 2007.

So right now, we don't seem to have a carrying wave of growth of any sort. Normally, a neutral is a positive for growth because people try to find a way. But in the current situation, this is not so. For one thing, stimulus this year did provide some boost, some of which is due to expire. Another unpleasant truth is that state and local governments are running into deep funding problems, and are being forced to raise taxes and fees plus cut spending, which is a very broadspread negative vector. Finally, small businesses are cutting employment and shutting down at a very high rate. Because these businesses account for such a big part of the jobs base, this is an unfortunate development which will have widespread effects. The businesses shutting down are not just restaurants and independent retail, but service businesses such as welders, mechanics, HVAC etc.

No ten year forecast is worth anything, because public policy changes in response to experience. There are public policy responses which could restore real growth, but there are also public policy responses which could make the situation worse.

It's worth noting that over the last six weeks many economists have shifted toward a more negative outlook.

Saturday, October 17, 2009

A Bow To Land Court Judge Keith Long

In general, I approach matters such as foreclosures from a banking point of view, albeit a community banking point of view (which, as long-time readers may have gathered, tends to differ from the reckless-too-big-to-fail-bank point of view). And in truth, I do not see that the praiseworthy judge's decision in this case is injurious to the interests of decent banks. But regardless, he is doing the right thing, and it is such a rare action in today's world that he deserves great honor for it.

Also I would like to point out that it is only the action of individual judges in individual states that have imposed any checks and balances on this whole mess; if we left it to the federal government, a few wacky Congress Critters would believe whatever Citibank and BofA lobbyists told them. Therefore if anyone suggests that somehow the federal government should "take over" or "overrule" the state requirements for foreclosures, you should fight it with fury.

Here is a link to the text of the decision, which was released yesterday. I will be updating this post with an explanation and summary, because the weird rumors are already flying over this.

Update1: This is laugh-out-loud funny. Even if you have never read such a document before, I believe you would be able to absorb the humor. My eyes are streaming from laughing so much.

Thursday, October 15, 2009

Praise Works

I think I'm going loony. Maybe it's the flu, but I don't think so.

I read The Anchoress' tribute on her husband, which was elicited (reposted) by this article in which a woman seems to be explaining proudly that she uses bribery, threats, punishment, sex and withholding of sex to get her husband to do some share of the housework. She goes on and on about oppression and parity and that her husband has to be treated like a child to get him to do what he ought to be doing, which he doesn't do enough of. What can one make of this?

So how have I accomplished this? By holding my husband’s feet to the fire every single day of our lives, of course.

Not one day of vacation in seventeen years? No "Honey, you've been working hard, why don't you just hang out this weekend?"

It all sounds most unpleasant, doesn't it? My feeling is that praise and appreciation works much better, and that if you are bribing or punishing your husband that can't be any fun, and if I didn't respect the Chief, I don't think I'd be exactly enjoying sex and that sex surely should be more than a way to control your husband. The whole way the writer goes on makes it sound like the relationship is just work, work, work and more grim work. I'm wanting to say that the article must be a misrepresentation of their marriage, but of course I don't know that.

You know, it sometimes works the other way around. A man will be a neat freak and drive his wife nuts. One person's natural way isn't always the only way, and one of the things marriage does do for people is to rub some of their own idiosyncrasies off and make them better people.

I think Dr. Helen has a good point regarding what this women may be teaching her children. All I can say is that this grim specter of a life of duty which involves herding a man around day after endless day is the sort of thing that would make me never want to marry!! Speaking as a woman. Seriously, if a girl or a woman accepted this proposition, why should she ever marry? It all sounds too damned exhausting!

The Chief and I are both rather imperfect people, but at least we have FUN together. At least we are mostly each other's rest and refuge from the world's difficulties. I get a warm surge of pleasure just from seeing him sit down in the morning to read the news on the internet with his coffee, and I sometimes bake him something just because I know he'll pick up a piece and lug it over with that body language of implicit satisfaction.

I had the weirdest sensation when reading the original article. I immediately thought of the Rapture. You know, the Christian rapture that some Christian sects believe in, in which one day everybody good gets sucked up to heaven and the rest are all left to deal with the Time of Tribulation. It has never appealed to me, and one reason is that I doubt I'd be raptured, but if I were, it would be hell. Who is supposed to be taking care of those left behind? The dogs, the kids, the lonely people living alone - this seems more like a last torture than some sort of reprieve. It seems like a total disaster to me.

I mean, to some extent, one takes care of people and one takes pleasure in it just because the people are there, and they are yours to take care of, and it makes you feel good to do so. That is obviously even more so when they are your spouse whom you chose and are taking care of. I just keep staring at what this woman wrote thinking "This can't really be true. This is how she thinks she ought to feel, but not all of how she really feels." Isn't there anything in her that would make her happy to see her husband hanging with the coffee over breakfast on the weekends? Everyone has those ritual moments of relaxation that a person looks forward to, and doesn't it give her a bit of a kick to see her husband having that and to think "I can give him this?" And he does work outside the home, and she does work at home, so of course she can make her own moments of relaxation.

I feel like my skull exploded from sheer astonishment. Either what this woman wrote is a lie, or I have completely misunderstood what a lot of people find in their relationships. It seems to me that people sort of naturally learn to pull together, and that there's a pleasure in that. I know both the Chief and I do that and feel good about it, and I know my parents did. The small considerations add up to a pattern of love and warmth that's literally woven into daily life, and it is a rich, deep, romantic type of thing.

I get The Anchoress' post without any trouble. Yes, indeed. But the original article appears almost impossibly divorced from basic animal instincts and normal human interactions. But if the article isn't a lie, than this woman has created a sort of prison for herself, regardless of what her husband thinks of everything, and she's made everything a duty, and nothing a gift, which just seems impossibly barren and stark.

Wednesday, October 14, 2009

Do As We Say

...But not as we did.

Both the Chief and I have been sick for weeks with this thing, which probably is H1N1. Both of us have kept getting up as soon as we felt a bit better, and both of us keep relapsing. We have now made a compact to actually try resting, which is what I am doing. I note that doing so for a few days has produced a pretty strong immune reaction. I don't know what it is with this stupid virus - you just don't feel that sick, but you really don't kick it out.

Anyway, I have heard from a few people who have done much the same thing and have managed to make themselves pretty darned sick, so I'd advise you to overrule your instinct to declare a premature victory and instead make like a couch potato until you stop feeling so tired. I can testify from personal experience that just drinking more coffee and exercising more does not work.

Saturday, October 10, 2009

Sorry For Not Posting

The Chief hasn't been feeling too good after getting what he thought was a very light cold last week, then chest inflammation this week. I figured it was the flu, so this morning was tied up getting Zithromax. But now he is having chest pain, so it is off to the hospital.

Update: The Chief is in the hospital resting comfortably, trying to convince everyone to let him out. I think it's the flu.

Further Update: The Chief has escaped durance vile!!! They thought he was having a heart attack, but no, all his tests are clear. He is a much more chipper Chief, although he still has the flu, but even that is considerably better, and his lungs are clearer. I am vastly relieved. His pet goose is very happy. The dogs have taken a victory run, and now we will all topple into bed as the tension leaves our bodies.... It turned out that he started having the chest pains Friday morning early, so he stuck it out two days without feeling the need to consult a medical authority, or any deranged naggy person who might advocate consulting a medical authority. It was only when he started sweating and feeling disoriented that he figured he had better do something about it. Oh, well, he is alive, and the enforced inactivity did him good. Last week he told me very indignantly that if he rested any more, he'd die.

More Of A Burden Than An Honor

There are two bad things about this. First, Obama is in the early stages of what he is trying to do, and this is making every country in the world sit down and review results rather than rhetoric at a time when international cooperation is truly needed. And the truth is that there are no achievements, which is no criticism of our president, because peace is not that easy and not that quick. Second, it is going to irk some of the world leaders very deeply, and in doing so, it is going to hamper Obama's and the US' efforts rather than facilitate them.

Obama could go over and give a really wonderful speech renouncing this prize that would greatly help him, but if he accepts it, he's going to regret it.

For myself, I was first incredulous and then just worried. I suppose it was kindly meant, but I think Spiegel's take is unfortunately the truth:

Roughly: Distinguished today was not an American president who has perhaps to make difficult and potentially unpopular decisions, but a world wide symbol in whom since the 2008 election the hopes and wishes of the entire world have been invested. Obama has been almost demanding these somewhat superhuman expectations. Nine months after his oath of office his political task is now to manifest the functional politician in conjunction with the estimable bearer of global hope. The decision from Oslo will not help him. It is more a burden than an honor. The article then goes on to review the lack of success so far in the American diplomatic initiatives, implies that he should not accept the prize, and then concludes with:

Should he accept the prize, the foreign applause is certain. How his own country views it is not so certain. The Americans want a president in the White House, not a fantasy figure from Oslo. Unpleasant but probably true.

I'm just reading around all the newspapers, absorbing the commentary. I had meant to post an economic summary, but I guess that will be tomorrow. Also I wanted to get back to incomes and the reality of how much the average household can pay for insurance, per Joy's "rough beast" comment, which had me laughing and wincing at the same time.

Update: Sigh. So he accepts. Famous last hopes.

Further Update: So I've watched his acceptance speech, and it turns out he accepted it with the intention to share with everybody else, and the prize means that the world wants the US to lead, and in any case, these goals are responsibility of all nations:

That's why my administration wants to establish a new era of engagement in which all nations must take responsibility for the world we seek.

"An affirmation of American leadership on behalf of aspirations held by people in all nations."

Towards the end of the speech he says:

Some of the work confronting us will not be completed during my presidency. Some, like the elimination of nuclear weapons, may not be completed in my lifetime, but I know that these challenges can be met, so long as it's recognized that they will not be met by one person or one nation alone.

So American leadership is just basically talking about it, and it's not America's responsibility. Methinks our pres just said he has no intention of becoming a functional politician to achieve these goals. He intends just to earnestly talk about them to motivate all nations, and nobody should complain that he doesn't become that functional politician, because really it is the world's responsibility, not HIS and not America's. He said he was "humbled" but I think he meant "pressured", and is trying to eliminate the soft bigotry of high expectations.

I guess we'll find out if this is really the leadership the world is seeking.